Sluggish electric demand plagues U.S. utilities

HOUSTON, May 11 Sluggish U.S. electricity
consumption has yet to return to the level seen in 2007 as
effects of the 2008 recession linger for utilities and power
producers, according to industry data.

Warmer-than-normal winter weather again depressed power use
in the first quarter compared to 2011, paring utility earnings
in many cases and leaving executives to search for other signs
of future recovery, like employment trends, the number of vacant
homes and data-center development.

"There was literally no winter weather anywhere in our
geographic footprint at any time," said David Crane, chairman of
NRG Energy, an independent power producer with nearly
25,000 megawatts of generation located in the U.S. Northeast,
Texas, Louisiana and California.

U.S. electric demand in 2011 slipped to 4,065
gigawatt-hours, down 0.6 percent from 2010 and nearly 0.9
percent from the 2007 peak demand of 4,100 GWh, according to
Edison Electric Institute data.

Weather is always a major factor influencing power
consumption, but ongoing economic weakness that eliminated some
industrial power load, increased spending on energy efficiency
in two dozen states and rising power prices are serving to keep
a lid on demand, said Michael Britt, a partner at Oliver Wyman,
an international consulting firm.

Government forecasts project consumption of electricity will
grow by 23 percent over the next three decades, but the annual
rate of growth will decline as it has for a number of years,
from a 4.7-percent annual pace in the 70s; to 2.4 percent in the
90s; 1 percent in the early 2000s; and 0.8 percent from 2010 to
2035, according to the Energy Information Administration.

The recession of 2008 was the most significant downturn in
the recent past "and its impact on every aspect of the economy
has been more pronounced and slower to bounce back," said Britt
of Oliver Wyman.

Flat electric demand may be the "new normal," Britt said,
pushing some utilities into a financial squeeze as their revenue
falls even as requirements for capital spending rise to address
stricter environmental standards and to upgrade aging
transmission assets.

"Without significant growth in the economy - which is not
projected, we are likely to have flat demand and rising capital
needs which will mean the unit cost of electricity will rise,"
Britt said. "That's a difficult environment for regulators and
utilities and they are going to have to work closely together to
moderate the rate impact."

Some states, like Texas, saw only limited impact from the
recession, while Virginia and a few other areas are seeing a
slow rebound in demand with improving local economic conditions.

A survey of energy experts by The Brattle Group said energy
efficiency programs may pare U.S. power consumption by 5 percent
to 15 percent by 2020 from current forecasts for growth.

Over the past three decades, average energy use in the
average U.S. household fell 31 percent due to fewer occupants,
better construction methods and energy-saving appliances,
according to the U.S. Energy Information Administration.

Since that 2005 survey, however, the number of
energy-consuming devices, especially electronics, jumped
significantly. The share of electricity used by appliances and
electronics nearly doubled to 31 percent in 2009, from 17
percent in the late 70s.

Predictions for mostly lackluster growth in power demand has
reduced the urgency for some utilities to build new power
plants, especially dozens of coal-fired plants in development a
few years ago.

Xcel's Minnesota utility dropped a plan to build a
large new natural gas plant in Minnesota, saying it had enough
generating capacity to serve its customers through 2018 and
Florida's severe economic downturn forced Progress Energy's
Florida utility to push back its plan for a costly new
nuclear reactor by three years to 2024.

One contrarian to the flat-growth theory is Mark P. Mills,
founder of Digital Power Group, who said a trio of technological
transformations related to data processing and storage, wireless
connectivity and smart manufacturing present a "very bright
future" for companies that produce electricity.

"The share of our economy devoted to moving bits is bigger
than the share devoted to moving people and stuff," Mills told
the Gulf Coast Power Association conference in Houston last
month.

The information segment of the U.S. economy, including
everything from server farms to I-phones to Netflix, "is where
all the growth is," Mills said.

"The bits-moving industry is all about electricity" and
consumes more power than all the commercial office space in
America, Mills said. "When everyone thinks there is no growth,
that's when it happens."

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